Is enterprise software pricing deliberately misleading?

Posted by: Glen Rabie

We moved to transparent, easy to understand pricing to stand apart from the competition

I often hear customers and prospects talk about how frustrating it can be to work out how analytics products are priced and what licensing constraints they have. That’s why we wanted to change the model and make it super simple for our customers to understand what Yellowfin costs.

Customers HATE not knowing what they’re going to pay

Many people at Yellowfin have spent time on the other side of the fence, as a customer purchasing BI products, which is why we approach our product from the customer’s perspective. Customers should understand what they’re getting, how they’re getting it and how much it will cost.

There’s a lot of bait and switch pricing in software. A buyer might receive an initial quote that excludes certain features, or becomes exponentially more expensive as they scale their business.

For example, most vendors constrain performance or the number of users because they want their customers to buy more from them. So when their customer complains that their performance is dreadfully slow, the vendor will charge them more to “fix” the problem by being told they need to purchase more server cores. The reality is that a customer cannot anticipate exactly how many server cores they’re going to need for their products and their customer base in advance. When a customer pays on server cores or any variable model, they will inevitably have to make choices downstream that compromise either pricing or performance.

Yellowfin used to provide server core pricing to be comparable to our competitors but we removed it because it didn’t work and wasn’t good for the customer. Today, we let our customers put on as many server cores as they want and then give them the best performance we can. We want them to grow their user base, not increase the server cores that they need to buy from us. That’s a huge difference in our pricing philosophy and in the value we provide.

Another method that is commonly used is token pricing. We recently won a customer back from Qlik because of token pricing. The customer used their entire BI budget for the year in the first three months because of Qlik’s token pricing. As they had no budget left, they weren’t able to give people access to the analytics software and had to print everything as a PDF instead because it didn’t cost more to do that. Obviously this was not a viable or scalable solution. So they switched to Yellowfin because they knew what it would cost them every year and they had room to grow.

We also won a deal with an accounting firm in Europe for the same reason. They were comparing Yellowfin and Qlik, and they literally had eight accountants in a room who couldn’t work out what Qlik was going to cost them each year.

Some licensing models are based on users, some on tokens, some on data volumes, some on server cores – they’re difficult to compare and incredibly frustrating for the customer. That’s why we base our pricing on the number of users that a customer wants to serve. It’s simple and easy to calculate (no CPA required!).

The biggest fear for a customer purchasing any type of software is that they might transgress the terms of their license and then be subject to an audit that costs them hundreds of thousands or even millions of dollars.

This happens because many licensing agreements are not clear about what the license allows the customer to use. The vendor then comes in and audits their usage and charges them for any extensions. This creates a tension between the vendor and customer that just isn’t healthy.

Fundamentally, it comes down to what rights the customer has. It should be clear to them what they can use and how much of it they can use. But most software licensing arrangements are deliberately vague. We’re about to enter a significant software license agreement with a large CRM vendor and the contract specifically states that we don’t have any control over what we use. They are making it possible for us to overextend the license from day one, so they can no doubt audit us in the future.

The reality is that software vendors could get rid of auditing tomorrow if they wanted to. They could license their products in a way that ensures their customers never use more than they are actually permitted to use. But they deliberately obfuscate the license for the benefit of the vendor, not the customer. It’s structured to enable the vendor to get more money out of the customer in the future.

Customers should be able to negotiate points with a vendor and highlight the flaws in the license. They should be able to protect themselves if the vendor makes it too easy for them to inadvertently extend their license, but they haven’t been able to. Take the recent example of SAP. They have put businesses on the hook for licensing users who indirectly used their software and have been able to extract millions of dollars from their customers.

At Yellowfin, we make sure that our customers don’t accidentally use more and we don’t aggressively audit our customers. Our pricing is also transparent so that our customers can rest assured that they’re not going to be hit with a huge bill down the track.

Transparency is about helping customers make good choices for their business

We want our customers to understand the value that we provide to their business. We believe that value from analytics is created through the number of people who use the product. The more users a customer has, the higher their adoption rates. That’s what we care about and strive for.

So if our customers need to use larger machines to deliver the performance they require for their end users, then we encourage it. Their end users are happy because they have great performance from a product they can scale without additional costs.

We want to help our customers and prospects understand Yellowfin’s value proposition faster so they can make good choices about what they want to purchase. Even if they decide that Yellowfin isn’t for them, at least they have all the information they need early on in the process so they can make the right decision for their business.

We know that Yellowfin is great value for money, but we’d rather people focus on the technology and what it will deliver for them rather than playing the game of sales. That’s why our pricing is transparent and easy to understand. There are no hidden costs and our customers understand exactly where the value in our product is. It’s that simple.